The revised copper market forecast
The fall of copper prices to 6.5-year lows in August prompted major mining companies like Freeport-McMoRan (FCX), Glencore (GLEN), and Anglo American (AAUKY) to declare production cuts. As mine shutdowns impact copper production in 2015 and 2016, production and usage forecasts have changed.
The International Copper Study Group (or ICSG) releases a forecast for copper market twice a year. In 2015, the first report was released in April and the revised second report was released on October 6. The above table explains the production and usage forecasts of copper for 2015 and 2016.
Impact of production cuts on copper forecast
After increasing by 7% in 2014, the total refined copper mine production is forecast to increase by only 0.8% in 2015. This is mainly because of the production cuts announced by major mining companies after April 2015. The forecast of a 360,000-ton surplus of copper production in 2015 released in April has been revised to 41,000 tons.
Plus, the 2016 production estimate has been reduced to a deficit of around 130,000 metric tons against an expected 230,000 surplus in April 2015. The reduction in the production estimate is because demand growth outpaced production growth.
After recording a growth of 7% in 2014, ICSG forecast world refined copper usage in 2015 to fall by 1.2%. This is due to the economic slowdown in China and a decrease in copper demand. For 2016, the refined copper usage is expected to be around 3%.
Investors are anticipating a tighter market situation
ICSG’s revised copper market forecast report suggests that there has been a fall in production and also in usage (or demand). This could possibly lead to a tighter situation in the market and can support mining companies and base metal ETFs like the PowerShares DB Base Metals Fund (DBB) and the SPDR S&P Metals & Mining ETF (XME), which fell significantly because of weak copper prices.